Over the past couple of years, companies and hedge funds have started making their way into cryptocurrency. With the global turmoil presented by coronavirus, they could be about to sell their holdings, especially after the halving, driving Bitcoin’s price down as a result.
Corporate investors view cryptocurrencies as high-risk assets and could be looking to offload it from their portfolios.
Bitcoin’s price could be subject to some pretty major fluctuations after the halving. Trends from the previous three halvings show that Bitcoin’s price tends to drop to a new low before then going on a bullish run over the next year or so.
What this halving interesting however is the background context that the coronavirus is adding this time. Notions of Bitcoin as a safe asset against the virus and global events has yet to be fully tested or proven. However, there is some fear that a selloff may come due to the combination of lower miner rewards and investors selling off their Bitcoin to make up for losses in other assets they have investments.
Not in it for the long game
Over the past couple of years, corporate buyers and hedge funds have been slowly moving into the crypto sphere. They view currencies like Bitcoin very differently to how you or I might view them.
With vast sums of money behind them to invest in a diverse portfolio, Bitcoin is just another asset class to these relatively new corporate investors. They aren’t investing in cryptocurrency for long term investment or out of ideological reasons like the average retail investor. That being said, it is important to remember that asset classes are ranked in terms of risk and cryptocurrency is deemed to be at the higher end of the chart.
Sure, Bitcoin might have been one of the best-performing assets of 2020 so far, but it is still viewed by corporate investors as a risky asset class. Ignorance of cryptocurrency as a whole is an issue, but in more general terms it is still viewed as one of the more wild-west type asset classes because of its history of past spikes and troughs as well as its decentralised nature.
Past halving data is readily available and the pattern is clear. A rise in price up to the event, and indeed some time after, and then a drop. Some short term investors will be looking to make some money in the next week or so whereas others will feel the need to sell their crypto stakes as the global crisis worsens
A world in disarray
By the end of April, around 30 million Americans lost their jobs, with the situation likely to get worse. The US government is also looking to borrow another $3 trillion, taking the country’s debt to almost $25 trillion.
In uncertain times such as these, cryptocurrencies could be some of the first assets to get unloaded from portfolios. As such, combined with the actions of short term traders, and soon to be less profitable miners, Bitcoin’s price could face a lot of downward pressure in the coming weeks.
However, if the previous halving trends are anything to go by, Bitcoin’s price should well exceed these pre-halving levels in around 18 months.